If you want to start up your own active, non-transparent ETFs, you might have to go through Eaton Vance first. The firm is touting its new Exchange Traded Managed Funds (ETMFs) and owns the patents to the strategy, so other firms would have to license it through Eaton Vance's Navigate Funds Solutions business.
| Stephen Clarke|
Navigate Fund Solutions
You've all seen the new stampede of active ETFs, between Pimco
's heap of launches earlier this year, DoubleLine
and State Street
's latest filing for the SPDR DoubleLine Total Return Tactical ETF
, and some others like it.
These firms are starting up actively managed ETFs, while others, like Eaton Vance, are launching active, non-transparent ETFs. Eaton Vance
started its Navigate Fund Solutions
business in 2011, specifically to help other firms license Exchange Traded Managed Funds, or ETMFs. Though it seems Eaton Vance is the only one using this moniker for now and only time will tell if the name, or the concept will take.
Moreover, what's interesting about Eaton Vance's strategy is that the firm bought the shop that created the methodology in 2010. That company, run by ETF industry experts Gary Gastineau
and Todd Broms
, was then called Managed ETFs
and the two gentlemen are now consulting Navigate on investment strategy and distribution. Eaton Vance now owns the patents to the methodology and other firms looking to launch funds like these would have to buy licenses from Eaton Vance.
, President of Navigate Fund Solutions, who came over from Old Mutual Asset Management
in 2011, told MFWire
the licenses would cost in the mid single-digit basis points, with break points for assets under management and discounts for early adopters.
The Navigate Fund Solutions products will be different from some of the other active mutual funds out there, in the sense that they're not transparent, i.e. like mutual funds, they will only disclose their holdings once a quarter with a 60 day lag. This is a strategy that firms say should prevent front running and dilution of returns. Though will investors go for them?
Many investors like ETFs particularly because they're cheap, transparent and passive, and then go to mutual funds for active management at a higher cost. So it remains to be seen whether they'll continue to want to divide and conquer or try to use one product to serve all their goals, and whether it will work.
The ETMFS also eliminate the traditional 12b-1 fees of mutual funds but cost 50bps more than traditional ETFs, which typically charge 20 bps. They trade daily on an exchange through a broker-dealer and offer the tax efficiencies of ETFs, but, like mutual funds, they will be priced at the end of the day and based on net-asset value.
The other issue is that these strategies and others like them are still in limbo, as many have been filed with the SEC
, some as long as years ago, and still haven't been approved.
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